Learning objectives: Explain how the Jarque-Bera test is used to determine whether returns are normally distributed. Describe the power law and its use for non-normal distributions. Define correlation and covariance and differentiate between correlation and dependence. Describe properties of...
Learning objectives: Use sample data to estimate quantiles, including the median. Estimate the mean of two variables and apply the CLT. Estimate the covariance and correlation between two random variables. Explain how coskewness and cokurtosis are related to skewness and kurtosis.
Questions...
Learning objectives: Define covariance and explain what it measures. Explain the relationship between the covariance and correlation of two random variables and how these are related to the independence of the two variables. Explain the effects of applying linear transformations on the...
Session 2, Reading 9 (Part 2): This video reviews portfolio variance and covariance, where covariance is the expected cross-product. We look at correlation, which is given by the covariance divided by the product of standard deviations, and therefore standardizes the covariance into a unitless...
Covariance is a measure of linear co-movement between variables. Independence implies zero covariance, but the converse is not necessarily true (because variables can be dependent in a non-linear way).
Here is David's XLS: http://trtl.bz/2B9nqdO
Variables are independent if and only if (iff) their JOINT probability is equal to the product of their unconditional (aka, marginal) probabilities; i.e., if and only if Prob(X,Y) = Prob(X)*Prob(Y). Further, if variables are independent then their covariance (and correlation) is equal to zero...
Learning objectives: Calculate and interpret the covariance and correlation between two random variables. Calculate the mean and variance of sums of variables.
Questions:
711.1. The following probability matrix displays joint probabilities for an inflation outcome, I = {2, 3, or 4}, and an...
I was looking at this specific 2-asset portfolio example and noticed that BT uses the matrix formula to get the variance of P.
What I'm confused about is why do you not use the variance formula: variance = X1^2*stddev(asset1)^2 + X2^2*stddev(asset2)^2 +...
Learning objectives: Calculate covariance using the EWMA and GARCH(1,1) models. Apply the consistency condition to covariance. Describe the procedure of generating samples from a bivariate normal distribution. Describe properties of correlations between normally distributed variables when using...
Learning objective: Define correlation and covariance and differentiate between correlation and dependence.
Questions:
705.1. In order to evaluate the the potential of a linear relationship between portfolio returns and a benchmark index, your colleague Richard conducted a univariate...
Learning outcomes: Define covariance stationary, autocovariance function, autocorrelation function, partial autocorrelation function and autoregression. Describe the requirements for a series to be covariance stationary. Explain the implications of working with models that are not covariance...
Learning outcomes: Define correlation and covariance, differentiate between correlation and dependence. Calculate covariance using the EWMA and GARCH (1,1) models. Apply the consistency condition to covariance.
Questions:
502.1. About the consistency condition, each of the following is true...
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